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Most of our financial transactions these days run on credit cards. Anywhere from shopping mall to a local grocery store, we have the ease of paying by credit. Credit cards provide us ease, financial freedom and security that are much needed in today's world. An important aspect of the credit card system is the credit history.

What is a credit history? Credit history is a report or a record of all the money you have borrowed and repaid over a period of time. Credit history includes details from every little purchase you make at your grocery store using your credit card to every major loan you have taken and repaid in the past. The credit history is a sound one, if all the bills are paid on time and all the debts are taken care of in a timely fashion. If not, it results in a bad credit.

Credit history matters a lot because it is like a guarantee to the company that lends money to you. Every time you make a major purchase using your credit card, or every time you apply for a loan, your credit history comes into account. If you do not have a credit card or if you have not had a loan at all in the past, then you do not have a credit history. Having no credit history can be a disadvantage in the long run.

Sometimes, unforeseen financial crisis can demand you to obtain a loan or use your credit card for a large sum of money. With no credit history, getting a loan or even a credit card can be a difficult situation. All money lending companies refer to your credit report in order to take the risk and lend the money. With no credit history, sailing through the financial crisis can be a bit challenging. Applying for new credit cards from reputed companies can be a problem too as the credit card companies refer to your credit history to approve your application.

So how does one start building a sound credit history? Most easy way to start is by applying for a secured credit card. A secured credit card provides the credit limit using a property as security. The amount approved is usually based on the value of the property or the amount you deposit in the bank. You can use the card to make small purchases and slowly build on your credit history. The interest rates can be a little higher while you start using the card, but once you start paying your bills on time and build a sound credit history, you can avail loans for much lower interest rates.

Departmental store cards or gas station cards also can serve the purpose. Applying and obtaining a departmental store card is much easier since it does not require your credit report. Using your departmental store card every time you shop can be helpful, provided the store reports your credit history and timely payments to the credit reporting companies.

With so much at stake during the times of recession, it is worth taking efforts to build a credit history. With some planning and precautions, it is not a very difficult task.